Correlation Between Sea and Liberty International

Can any of the company-specific risk be diversified away by investing in both Sea and Liberty International at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Sea and Liberty International into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Sea and Liberty International Holding, you can compare the effects of market volatilities on Sea and Liberty International and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Sea with a short position of Liberty International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sea and Liberty International.

Diversification Opportunities for Sea and Liberty International

-0.39

Correlation Coefficient

Sea  Liberty International

Very good diversification

The 3 months correlation between Sea and Liberty is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Sea and Liberty International Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liberty International and Sea is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Sea are associated (or correlated) with Liberty International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liberty International has no effect on the direction of Sea i.e., Sea and Liberty International go up and down completely randomly.

Pair Corralation between Sea and Liberty International

Allowing for the 90-day total investment horizon Sea is expected to generate 3.85 times less return on investment than Liberty International. But when comparing it to its historical volatility, Sea is 12.23 times less risky than Liberty International. It trades about 0.26 of its potential returns per unit of risk. Liberty International Holding is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  0.02  in Liberty International Holding on September 17, 2024 and sell it today you would lose (0.01) from holding Liberty International Holding or give up 50.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Sea  vs.  Liberty International Holding

Sea

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sea are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Sea exhibited solid returns over the last few months and may actually be approaching a breakup point.

Liberty International

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Liberty International Holding are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Liberty International reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sea and Liberty International

The main advantage of trading using opposite Sea and Liberty International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sea position performs unexpectedly, Liberty International can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Liberty International will offset losses from the drop in Liberty International's long position.

The idea behind Sea and Liberty International Holding pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.